“Continued rise in commodity prices + elevated FY22 estimated consensus growth expectations with valuations at over 21 times FY22 estimated EPS is the risk,” said Citi‘s Surendra Goyal and Vijit Jain.
Citi has a target of 14,800 on the Nifty by December this year which implies a minor downside from current levels.
Citi said oil prices remain in a cycle, but a super-cycle is unlikely.
However, the prospects for a super-cycle in copper and aluminium are real, said Citi which is overweight on metals in its model portfolio by 60 basis points.
History suggests that rising commodity prices are not necessarily detrimental to corporate earnings, growth is possibly the more important variable as it allows pricing power and collapse in commodity prices have tended to push margins higher. The firm said post Covid-19 recovery trends, beyond the base effect, might be the most crucial.
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